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EX-32.2 - CERTIFICATION - COMMONWEALTH INCOME & GROWTH FUND IVcigf4_ex32-2.htm
EX-32.1 - CERTIFICATION - COMMONWEALTH INCOME & GROWTH FUND IVcigf4_ex32-1.htm
EX-31.2 - CERTIFICATION - COMMONWEALTH INCOME & GROWTH FUND IVcigf4_ex31-2.htm
EX-31.1 - CERTIFICATION - COMMONWEALTH INCOME & GROWTH FUND IVcigf4_ex31-1.htm

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017 or
 
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number: 333-62526
 
COMMONWEALTH INCOME & GROWTH FUND IV
(Exact name of registrant as specified in its charter)
 
Pennsylvania
23-3080409
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
 
17755 US Highway 19 North
Suite 400
Clearwater, FL 33764
(Address, including zip code, of principal executive offices)
 
(877) 654-1500
(Registrant’s telephone number including area code)
 
Indicate by check mark whether the registrant (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (ii) has been subject to such filing requirements for the past 90 days:
YES NO
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES NO
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "accelerated filer, “large accelerated filer" and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
 
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
(Do not check if a smaller reporting company.)
Emerging growth company
 
Indicate by check mark whether the registrant is an emerging growth company (as defined in Rule 12b-2 of the Exchange Act). YES NO
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES NO
 

 
1
 
 
 FORM 10-Q
SEPTEMBER 30, 2017
TABLE OF CONTENTS
 
PART I
Item 1.
Financial Statements
3
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
16
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
21
Item 4.
Controls and Procedures
21
PART II
Item 1.
Legal Proceedings
22
Item 1A.
Risk Factors
23
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
23
Item 3.
Defaults Upon Senior Securities
23
Item 4.
Mine Safety Disclosures
23
Item 5.
Other Information
23
Item 6.
Exhibits
23
 
2
 
 
 
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
 
Commonwealth Income & Growth Fund IV
Condensed Balance Sheets
 
 
 
 
 
 
 
 
 
 September 30,
 
 
December 31,
 
 
 
2017
 
 
2016
 
 
 
(unaudited)
 
 
 
 
ASSETS
 
 
 
 
 
 
Cash
 $34,154 
 $19,091 
Lease income receivable, net of reserve of approximately $6,000 at September 30, 2017 and December 31, 2016
  12,042 
  13,154 
Other receivables
  41,590 
  16,172 
Refundable deposits
  1,130 
  1,130 
 
  88,916 
  49,547 
 
    
    
Net investment in finance leases
  20,286 
  29,808 
 
    
    
Equipment, at cost
  3,319,287 
  3,643,063 
Accumulated depreciation
  (2,083,555)
  (1,669,525)
 
  1,235,732 
  1,973,538 
 
    
    
Equipment acquisition costs, net of accumulated amortization of approximately $6,000 and $11,000 at September 30, 2017 and December 31, 2016, respectively
  136 
  2,582 
 
    
    
Total Assets
 $1,345,070 
 $2,055,475 
 
    
    
LIABILITIES AND PARTNERS' CAPITAL
    
    
LIABILITIES
    
    
Accounts payable
 $79,407 
 $80,788 
Accounts payable, CIGF, Inc., net
  193,671 
  218,395 
Accounts payable, Commonwealth Capital Corp., net
  221,414 
  298,960 
Other accrued expenses
  10,992 
  18,910 
Unearned lease income
  36,403 
  21,798 
Notes payable
  756,317 
  1,348,830 
Total Liabilities
  1,298,204 
  1,987,681 
 
    
    
COMMITMENTS AND CONTINGENCIES
    
    
PARTNERS' CAPITAL
    
    
General Partner
  1,000 
  1,000 
Limited Partners
  45,866 
  66,794 
Total Partners' Capital
  46,866 
  67,794 
Total Liabilities and Partners' Capital
 $1,345,070 
 $2,055,475 
 
    
    
see accompanying notes to condensed financial statements
 
3
 
Commonwealth Income & Growth Fund IV
Condensed Statements of Operations
(unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
Nine Months Ended
 
September 30,
September 30,
 
 
2017
 
 
2016
 
 
2017
 
 
2016
 
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
Lease
 $224,070 
 $248,983 
 $699,668 
 $757,208 
Interest and other
  341 
  557 
  1,329 
  2,167 
Gain on sale of equipment
  - 
  - 
  - 
  590 
Total revenue and gain on sale of equipment
  224,411 
  249,540 
  700,997 
  759,965 
 
    
    
    
    
Expenses
    
    
    
    
Operating, excluding depreciation and amortization
  8,192 
  11,877 
  62,068 
  62,551 
Interest
  10,280 
  19,240 
  37,509 
  63,937 
Depreciation
  190,963 
  220,088 
  595,500 
  664,229 
Amortization of equipment acquisition costs and deferred expenses
  588 
  1,357 
  2,446 
  4,640 
Loss on sale of equipment
  26,070 
  - 
  24,402 
 -
Total expenses
  236,093 
  252,562 
  721,925 
  795,357 
 
    
    
    
    
Net loss
 $(11,682)
 $(3,022)
 $(20,928)
 $(35,392)
 
    
    
    
    
Net loss allocated to Limited Partners
 $(11,682)
 $(3,022)
 $(20,928)
 $(35,392)
 
    
    
    
    
Net loss per equivalent Limited Partnership unit
 $(0.02)
 $(0.00)
 $(0.03)
 $(0.05)
 
    
    
    
    
Weighted average number of equivalent Limited Partnership units outstanding during the period
  747,925 
  747,925 
  747,925 
  747,925 
 
    
    
    
    
see accompanying notes to condensed financial statements
 
4
 
Commonwealth Income & Growth Fund IV
Condensed Statement of Partners' Capital
For the nine months ended September 30, 2017
(unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
General
Limited
 
 
 
 
Partner
Partner
General
Limited
 
 
Units
Units
Partner
Partners
Total
Balance, January 1, 2017
  50 
  747,925 
 $1,000 
 $66,794 
 $67,794 
Net loss
  - 
  - 
  - 
  (20,928)
  (20,928)
Balance, September 30, 2017
  50 
  747,925 
 $1,000 
 $45,866 
 $46,866 
 
    
    
    
    
    
see accompanying notes to condensed financial statements
 
 
5
 
 
 
Commonwealth Income & Growth Fund IV
Condensed Statements of Cash Flow
(unaudited)
 
 
Nine months ended
 
 
 
September 30,
 
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
Net cash (used in) provided by operating activities
 $(113,571)
 $20,851 
 
    
    
Cash flows from investing activities
    
    
Capital expenditures
  - 
  (30,174)
Payments received from finance leases
  10,729 
  12,966 
Net proceeds from sale of equipment
  117,905 
  7,173 
Net cash provided by (used in) investing activities
  128,634 
  (10,035)
 
    
    
Net increase in cash
  15,063 
  10,816 
 
    
    
Cash, beginning of the period
  19,091 
  4,152 
 
    
    
Cash, end of the period
 $34,154 
 $14,968 
 
    
    
see accompanying notes to condensed financial statements
 
6
 
 
NOTES TO CONDENSED FINANCIAL STATEMENTS
 
1. Business
 
Commonwealth Income and Growth Fund IV (“CIGF4” or the “Partnership” or the “Fund”) is a limited partnership organized in the Commonwealth of Pennsylvania on April 20, 2001. The Partnership offered $15,000,000 of limited partnership interest to the public on October 19, 2001. The Partnership raised the minimum capital required ($1,150,000) and commenced operations on July 8, 2002. The Partnership was fully subscribed and terminated its offering of units on September 15, 2003 with 749,950 units ($14,967,729) sold.
 
The Partnership was originally scheduled to end its operational phase on December 31, 2013.  During the year ended December 31, 2013, the operational phase was officially extended to December 31, 2015 through a proxy vote initiated by the General Partner.  The Partnership’s operational phase ended on December 31, 2015.  The Fund is scheduled to expire on December 31, 2017.  The General Partner has not formally approved a plan for liquidation at this time.  As such, the Partnership will continue to report its financial statements on a going concern basis until a formal plan of liquidation is approved by the General Partner.
 
During the Partnership’s operational phase, the investment strategy was to acquire high technology equipment consisting of medical, telecommunications and inventory management equipment. As the Partnership’s operational phase has ended on December 31, 2015, the General Partner’s will begin the wind down process as it prepares the Fund for the liquidation phase which is planned to commence on December 31, 2017.
 
The Partnership used the proceeds of the offering to acquire, own and lease various types of information technology, medical technology, telecommunications technology, inventory management equipment and other similar capital equipment, which is leased primarily to U.S. corporations and institutions. Commonwealth Capital Corp (“CCC”), on behalf of the Partnership and other affiliated partnerships, acquires equipment subject to associated debt obligations and lease agreements and allocates a participation in the cost, debt and lease revenue to the various partnerships that it manages based on certain risk factors.
 
The Partnership’s General Partner is Commonwealth Income & Growth Fund, Inc. (the “General Partner”), a Pennsylvania corporation which is an indirect wholly-owned subsidiary of CCC. CCC is a member of the Investment Program Association (IPA), REISA, Financial Planning Association (FPA), and the Equipment Leasing and Finance Association (ELFA).
 
Liquidity and Going Concern
 
The General Partner and CCC have committed to fund, either through cash contributions and/or forgiveness of indebtedness, any necessary operational cash shortfalls of the Partnership through September 30, 2018. The General Partner will continue to reassess the funding of limited partner distributions throughout 2017 and will continue to waive certain fees. The General Partner and CCC will also determine if related party payables owed to the Partnership may be deferred (if deemed necessary in an effort to further increase the Partnership’s cash flow). If available cash flow or net disposition proceeds are insufficient to cover the Partnership expenses and liabilities on a short and long term basis, the Partnership may attempt to obtain additional funds by disposing of or refinancing equipment, or by borrowing within its permissible limits.  
 
The Partnership has incurred recurring losses and has a working capital deficit at September 30, 2017. The Partnership believes it has alleviated these conditions as discussed above. Allocations of income and distributions of cash are based on the Agreement. The various allocations under the Agreement prevent any limited partner’s capital account from being reduced below zero and ensure the capital accounts reflect the anticipated sharing ratios of cash distributions, as defined in the Agreement. During the nine months ended September 30, 2017, the General Partner elected to forgo distributions and allocations of net income owed to it, and suspended limited partner distributions. The General Partner will continue to reassess the funding of limited partner distributions throughout 2017 and will continue to waive certain fees.
 
 
7
 
 
2. Summary of Significant Accounting Policies
 
Basis of Presentation
 
The financial information presented as of any date other than December 31, 2016 has been prepared from the books and records without audit. The following unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Financial information as of December 31, 2016 has been derived from the audited financial statements of the Partnership, but does not include all disclosures required by generally accepted accounting principles to be included in audited financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information for the periods indicated, have been included. Operating results for the nine months ended September 30, 2017 are not necessarily indicative of financial results that may be expected for the full year ended December 31, 2017.
 
Disclosure of Fair Value of Financial Instruments
 
Estimated fair value was determined by management using available market information and appropriate valuation methodologies. However, judgment was necessary to interpret market data and develop estimated fair value. Cash, receivables, accounts payable and accrued expenses and other liabilities are carried at amounts which reasonably approximate their fair values as of September 30, 2017 and December 31, 2016 due to the short term nature of these financial instruments.
 
The Partnership’s long-term debt consists of notes payable, which are secured by specific equipment and are nonrecourse liabilities of the Partnership. The estimated fair value of this debt at September 30, 2017 and December 31, 2016 approximates the carrying value of these instruments, due to the interest rates on the debt approximating current market interest rates. The Partnership classifies the fair value of its notes payable within Level 2 of the valuation hierarchy based on the observable inputs used to estimate fair value.
 
Cash
 
At September 30, 2017, cash was held in one bank account maintained at one financial institution with a balance of approximately $38,000.  Bank accounts are federally insured up to $250,000 by the FDIC.  At September 30, 2017, the total cash bank balance was as follows:
 
At September 30, 2017
 
Balance
 
Total bank balance
 $38,000 
FDIC insured
  (38,000)
Uninsured amount
 $- 
 
The Partnership's deposits are fully insured by the FDIC. The Partnership has not experienced any losses in our accounts, and believes it is not exposed to any significant credit risk. The amounts in such accounts will fluctuate throughout 2017 due to many factors, including cash receipts and interest rates.
 
8
 
 
Recently Adopted Accounting Pronouncements
 
In October 2016, the FASB issued Accounting Standards Update 2016-17— Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. This standard was adopted January 1, 2017; however, adoption of this ASU had no impact on the Partnership’s financial statements during the nine months ended September 30, 2017.
 
Recent Accounting Pronouncements Not Yet Adopted
 
In August 2016, the FASB issued Accounting Standards Update 2016-15—Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments- The amendments in this Update apply to all entities, including both business entities and not-for-profit entities that are required to present a statement of cash flows under Topic 230. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Partnership is currently evaluating the effect that this ASU will have on its financial statements.
 
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) Section A—Leases: Amendments to the FASB Accounting Standards Codification® Section B—Conforming Amendments Related to Leases: Amendments to the FASB Accounting Standards Codification® Section C—Background Information and Basis for Conclusions- Effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, for any of the following: A public business entity; A not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market; An employee benefit plan that files financial statements with the U.S. Securities and Exchange Commission (SEC). The new standard requires the recognition and measurement of leases at the beginning of the earliest period presented using a modified retrospective approach, which includes a number of optional practical expedients that entities may elect to apply.  This guidance also expands the requirements for lessees to record leases embedded in other arrangements and the required quantitative and qualitative disclosures surrounding leases. We have begun accumulating the information related to leases and are evaluating our internal processes and controls with respect to lease administration activities. Additionally, our business involves lease agreements with our customers whereby we are the lessor in the transaction. Accounting guidance for lessors is largely unchanged. Our evaluation of this guidance is ongoing and the impact that this new guidance will have on our financial statements has not yet been determined.
 
In January 2016, the FASB issued Accounting Standards Update No. 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities- the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Partnership is currently evaluating the effect that this ASU will have on its financial statements.
 
9
 
 
3. Information Technology, Medical Technology, Telecommunications Technology, Inventory Management Equipment (“Equipment”)
 
The Partnership is the lessor of equipment under leases with periods that generally will range from 12 to 48 months. In general, associated costs such as repairs and maintenance, insurance and property taxes are paid by the lessee.
 
Remarketing fees will be paid to the leasing companies from which the Partnership purchases leases. These are fees that are earned by the leasing companies when the initial terms of the lease have been met. The General Partner believes that this strategy adds value since it entices the leasing company to remain actively involved with the lessees for potential extensions, remarketing or sale of equipment. This strategy is designed to minimize any conflicts the leasing company may have with a new lessee and may assist in maximizing overall portfolio performance. The remarketing fee is tied into lease performance thresholds and is a factor in the negotiation of the fee. Remarketing fees incurred in connection with lease extensions are accounted for as operating costs. Remarketing fees incurred in connection with the sale of equipment are included in the gain or loss calculations. For the nine months ended September 30, 2017 and 2016, there were no remarketing fees incurred and/or paid with cash or netted against receivables due from such parties.
 
Gains from the termination of leases are recognized when the lease is modified and terminated concurrently.  Gains from lease termination included in lease revenue for the nine months ended September 30, 2017 and 2016 was approximately $0 and $1,000, respectively.
 
CCC, on behalf of the Partnership and on behalf of other affiliated companies and partnerships (“partnerships”), acquires equipment subject to associated debt obligations and lease agreements and allocates a participation in the cost, debt and lease revenue to the various companies based on certain risk factors.
 
The Partnership’s share of the cost of the equipment in which it participates with other partnerships at September 30, 2017 was approximately $726,000 and is included in the Partnership’s equipment on its balance sheet. The Partnership’s share of the outstanding debt associated with this equipment at September 30, 2017 was approximately $5,000 and is included in the Partnership’s notes payable on its balance sheet. The total cost of the equipment shared by the Partnership with other partnerships at September 30, 2017 was approximately $2,244,000.  The total outstanding debt related to the equipment shared by the Partnership at September 30, 2017 was approximately $10,000.
 
The Partnership’s share of the cost of the equipment in which it participates with other partnerships at September 30, 2016 was approximately $731,000 and is included in the Partnership’s equipment on its balance sheet. The Partnership’s share of the outstanding debt associated with this equipment at September 30, 2016 was approximately $101,000 and is included in the Partnership’s notes payable on its balance sheet. The total cost of the equipment shared by the Partnership with other partnerships at September 30, 2016 was approximately $2,753,000.  The total outstanding debt related to the equipment shared by the Partnership at September 30, 2016 was approximately $331,000.
 
10
 
 
The following is a schedule of approximate future minimum rentals on non-cancellable operating leases at September 30, 2017:
 
 For the period ended December
 
Amount
 
Three months ended December 31, 2017
 $189,000 
Year Ended December 31, 2018
  541,000 
Year Ended December 31, 2019
  85,000 
 
 $815,000 
 
The Partnership’s operational phase officially ended on December 31, 2015 and the Fund is set to expire on December 31, 2017. If the Partnership should expire with a portfolio of active leases, the General Partner will assume ownership of the remaining active leases and any associated debt obligation for the duration of the remaining lease term.
  
Finance Leases
 
The following lists the approximate components of the net investment in direct financing leases:
 
 
September 30, 2017
December 31, 2016
Total minimum lease payments to be received
 $14,000 
 $25,000 
Estimated residual value of leased equipment (unguaranteed)
  7,000 
  7,000 
Less: unearned income
  (1,000)
  (2,000)
Net investment in finance leases
 $20,000 
 $30,000 
 
We assess credit risk for all of our customers, including those that lease under finance leases. This credit risk is assessed using an internally developed model which incorporates credits scores from third party providers and our own customer risk ratings and is periodically reviewed. Our internal ratings are weighted based on the industry that the customer operates in. Factors taken into consideration when assessing risk include both general and industry specific qualitative and quantitative metrics. We separately take in to consideration payment history, open lawsuits, liens and judgments. Typically, we will not extend credit to a company that has been in business for less than 5 years or that has filed for bankruptcy within the same period. Our internally based model may classify a company as high risk based on our analysis of their audited financial statements and their payment history. Additional considerations of high risk may include history of late payments, open lawsuits and liens or judgments. In an effort to mitigate risk, we typically require deposits from those in this category.
 
A reserve for credit losses is deemed necessary when payment has not been received for one or more months of receivables due on the equipment held under finance leases. At the end of each period, management evaluates the open receivables due on this equipment and determines the need for a reserve based on payment history and any current factors that would have an impact on payments.
 
The following table presents the credit risk profile, by creditworthiness category, of our direct finance lease receivables at September 30, 2017:
 
Risk Level
Percent of Total
Low
    -%
Moderate-Low
    -%
Moderate
    -%
Moderate-High
    100%
High
    -%
Net finance lease receivable
  100%
 
11
 
 
As of September 30, 2017 and December 31, 2016, we determined that we did not have a need for an allowance for uncollectible accounts associated with any of our finance leases, as the customer payment histories with us, associated with these leases, has been positive, with no late payments.
 
The following is a schedule of approximate future minimum rentals on non-cancelable direct financing leases at September 30, 2017:
 
Amount
Three months ended December 31, 2017
 $3,000 
2018
  8,000 
2019
  3,000 
Total
 $14,000 
 
The Partnership’s operational phase officially ended on December 31, 2015 and the Fund is scheduled to commence its wind down process on December 31, 2017. If the Partnership should expire, the General Partner will assume all remaining active leases at their fair market value and related remaining revenue stream and any associated debt obligation for the duration of the remaining lease term.
  
4. Related Party Transactions
 
Receivables/Payables
 
As of September 30, 2017 and December 31, 2016, the Partnership’s related party receivables and payables are short term, unsecured, and non-interest bearing.
 
Nine months ended September 30,
  2017
    2016  
 
 
   
 
 
       
 
Reimbursable Expenses
 
 
   
 
 
       
 
Reimbursable expenses, which are charged to the partnership by CCC in connection with the administration and operation of the Partnership, are allocated to the Partnership based upon several factors including, but not limited to, the number of investors, compliance issues, and the number of existing leases. For the nine months ended September 30, 2017 and 2016, no “Other LP” expense was charged to the Partnership.
 $58,000 
 57,000 
 
 
12
 
 
5. Notes Payable
 
Notes payable consisted of the following approximate amounts:
 
 
September 30,
2017
December 31,
2016
Installment note payable to bank; interest ranging from 3.68% due in monthly installments of $822, including interest, with final payment in February 2017
  - 
  2,000 
Installment notes payable to bank; interest at 4.23% due in quarterly installments ranging from $227 to $239, including interest, with final payment in February 2017
  - 
  1,500 
Installment note payable to bank; interest at 4.23% due in quarterly installments of $264, including interest, with final payment in March 2017
  - 
  500 
Installment note payable to bank; interest at 4.23% due in quarterly installments of $1,327, including interest, with final payment in April 2017
  - 
  3,000 
Installment note payable to bank; interest at 4.23% due in quarterly installments of $1,650, including interest, with final payment in June 2017
  - 
  3,000 
Installment note payable to bank; interest at 1.60% due in monthly installments of $868, including interest, with final payment in July 2017
  - 
  6,000 
Installment note payable to bank; interest at 4.85% due in quarterly installments of $5,133, including interest, with final payment in July 2017
  - 
  15,000 
Installment note payable to bank; interest at 4.23% due in quarterly installments of $305, including interest, with final payment in August 2017
  - 
  1,000 
Installment note payable to bank; interest at 3.98% due in monthly installments of $8,544, including interest, with final payment in August 2017
  - 
  67,000 
Installment notes payable to bank; interest at 4.23% due in quarterly installments ranging from $280 to $685, including interest, with final payment in September 2017
  - 
  4,000 
Installment note payable to bank; interest at 4.85% due in quarterly installments of $1,751, including interest, with final payment in September 2017
  - 
  5,000 
Installment note payable to bank; interest at 4.23% due in quarterly installments of $598, including interest, with final payment in October 2017
  500 
  2,000 
Installment notes payable to bank; interest ranging from 4.85% to 4.88% due in monthly installments ranging from $1,058 to $2,087, including interest, with final payment in October 2017
  5,000 
  50,000 
Installment notes payable to bank; interest at 6.00% due in monthly installments ranging from $84 to $880, including interest, with final payment in November 2017
  500 
  6,000 
Installment note payable to bank; interest at 4.23% due in quarterly installments of $832, including interest, with final payment in January 2018
  2,000 
  4,000 
Installment note payable to bank; interest at 4.85% due in monthly installments of $764, including interest, with final payment in January 2018
  3,000 
  10,000 
Installment notes payable to bank; interest at 4.23% due in quarterly installments of $479, including interest, with final payment in February 2018
  6,000 
  14,000 
Installment notes payable to bank; interest at 4.23% due in quarterly installments ranging from $207 to $278, including interest, with final payment in March 2018
  2,500 
  6,000 
Installment notes payable to bank; interest at 4.23% due in quarterly installments ranging from $228 to $597, including interest, with final payment in April 2018
  4,500 
  9,000 
Installment notes payable to bank; interest at 4.23% due in quarterly installments ranging from $392 to $2,098, including interest, with final payment in June 2018
  11,000 
  21,000 
Installment note payable to bank; interest at 4.99% due in quarterly installments of $1,350, including interest, with final payment in June 2018
  4,000 
  8,000 
Installment notes payable to bank; interest at 4.23% due in quarterly installments ranging from $361 to $6,707, including interest, with final payment in July 2018
  27,000 
  47,000 
Installment note payable to bank; interest at 3.98% due in monthly installments of $10,321, including interest, with final payment in August 2018
  111,000 
  200,000 
Installment notes payable to bank; interest at 4.23% due in quarterly installments ranging from $208 to $534, including interest, with final payment in September 2018
  4,000 
  7,000 
Installment notes payable to bank; interest ranging from 4.23% to 4.37% due in quarterly installments ranging from $270 to $56,553, including interest, with final payment in October 2018
  298,000 
  469,000 
Installment notes payable to bank; interest at 6.00% due in monthly installments ranging from $105 to $394, including interest, with final payment in November 2018
  4,000 
  7,000 
Installment notes payable to bank; interest at 4.23% due in quarterly installments ranging from $350 to $352, including interest, with final payment in November 2018
  3,000 
  5,000 
Installment note payable to bank; interest at 4.98% due in monthly installments of $5,937, including interest, with final payment in December 2018
  86,000 
  135,000 
Installment notes payable to bank; interest at 6.00% due in monthly installments ranging from $162 to $378, including interest, with final payment in August 2019
  7,000 
  10,000 
Installment note payable to bank; interest at 4.98% due in monthly installments of $6,928, including interest, with final payment in December 2019
  177,000 
  231,000 
 
 $756,000 
 $1,349,000 
 
13
 
 
The notes are secured by specific equipment with a carrying value of approximately $1,214,000 and are nonrecourse liabilities of the Partnership. As such, the notes do not contain any financial debt covenants with which we must comply on either an annual or quarterly basis.
 
Aggregate approximate maturities of notes payable for each of the periods subsequent to September 30, 2017 are as follows:
 
 
Amount
Three months ended December 31, 2017
 $153,000 
Year ended December 31, 2018
  520,000 
Year ended December 31, 2019
  83,000 
 
 $756,000 
 
During 2015, the General Partner executed a collateralized debt financing agreement on behalf of certain affiliates for a total shared loan amount of approximately $847,000, of which the Partnership’s share was approximately $52,000. The Partnership’s portion of the current loan amount at September 30, 2017 was approximately $12,000 and is secured by specific equipment under both operating and finance leases. The carrying value of the secured equipment under operating and finance leases at September 30, 2017 is approximately $2,000 and $19,000, respectively.
 
The Partnership’s operational phase officially ended on December 31, 2015 and the Fund is scheduled to commence its wind down process on December 31, 2017. If the Partnership should expire with a portfolio of active leases, the General Partner will assume the obligation related to the remaining notes payable for the duration of the remaining lease term.
 
 
14
 
 
6. Supplemental Cash Flow Information
 
Other noncash activities included in the determination of net loss are as follows:
 
Nine months ended September 30,
2017
2016
Lease revenue net of interest expense on notes payable realized as a result of direct payment of principal by lessee to bank
 $593,000 
 $627,000 
 
No interest or principal on notes payable was paid by the Partnership because direct payment was made by lessee to the bank in lieu of collection of lease income and payment of interest and principal by the Partnership.
 
Noncash investing and financing activities include the following:
 
Nine months ended September 30,
2017
2016
Debt assumed in connection with purchase of equipment
 $- 
 $24,000 
 
During the nine months ended September 30, 2017 and 2016, the Partnership wrote-off fully amortized acquisition fees of approximately $8,000.
 
7. Commitments and Contingencies
 
Investor Complaint
 
On November 10, 2015, certain investors (the “Claimants”) of Commonwealth Income & Growth Fund V (“CIGF5”) and Commonwealth Income & Growth Private Fund III (“CIGPF3”) (Collectively referred to as the “Funds”), filed an investor complaint with FINRA naming CCSC and Ms. Springsteen-Abbott (the “Respondents”).  The Claimants, at the advice and recommendation of their personal financial advisors, purchased limited partnership units in CIGF5 between February 2005 and February 2006 and in CIGPF3 between April 2005 and February 2007.  The Claimants allege that the Respondents did not properly perform their duties as fund manager.  The Funds are not members of FINRA and/or subject to its jurisdiction.
 
The Respondents filed a complaint on December 23, 2015, against the Claimants in the United States District Court for the District of Maryland to enjoin the Claimants from proceeding with the arbitration and requiring its dismissal.  The Claimants withdrew its complaint with FINRA on July 27, 2016.  On August 1, 2016, the Respondents were granted voluntary dismissal in Federal court given the withdrawal of the FINRA claim.
 
On September 28, 2016, 23 investors, in addition to the original Claimants (the “Florida Claimants”) filed a complaint in the United States District Court for the Middle District of Florida, Albers et al. v. Commonwealth Capital Corp. et al., Case No. 6:16-cv-01713-Orl-37DCI, against the Partnership, Commonwealth Income & Growth Private Fund I, Commonwealth Income & Growth Private Fund II, CIGPF3 and CIGF5.  The allegation consists of breach of contract, securities fraud, misstatement in the prospectus, fraudulent concealment, negligence, common law fraud (the “Original Complaint”).  On October 18, 2016, the judge dismissed the Original Complaint without prejudice with leave to refile. The judge dismissed the Original Complaint for procedural failures. On October 28, 2016, the Florida Claimants filed an amended complaint that included the original claims with the addition of claims for negligent supervision and breach of industry standards (“Amended Complaint’). On July 17, 2017 the United States Court for the Middle District of Florida dismissed all claims and closed the file.
 
15
 
 
FINRA
 
On May 3, 2013, the FINRA Department of Enforcement filed a complaint naming Commonwealth Capital Securities Corp. (“CCSC”) and the owner of the firm, Kimberly Springsteen-Abbott, as respondents; however on October 22, 2013, FINRA filed an amended complaint that dropped the allegations against CCSC and reduced the scope of the allegations against Ms. Springsteen-Abbott.  The sole remaining charge was that Ms. Springsteen-Abbott had approved the misallocation of some expenses to certain Funds.
 
Management believes that the expenses at issue include amounts that were proper and that were properly allocated to Funds, and also identified a smaller number of expenses that had been allocated in error, but were adjusted and repaid to the affected Funds when they were identified in 2012.  During the period in question, Commonwealth Capital Corp. (“CCC”) and Ms. Springsteen-Abbott provided important financial support to the Funds, voluntarily absorbed expenses and voluntarily waived fees in amounts aggregating in excess of any questioned allocations. That Panel ruled on March 30, 2015, that Ms. Springsteen-Abbott should be barred from the securities industry because the Panel concluded that she allegedly misallocated approximately $208,000 of expenses involving certain Funds over the course of three years. As such, management has allocated approximately $87,000 of the $208,000 in allegedly misallocated expenses back to the affected funds as a contingency accrual in CCC’s financial statements and a good faith payment for the benefit of those Income Funds. 
 
Decisions issued by FINRA's Office of Hearing Officers may be appealed to FINRA's National Adjudicatory Council (NAC) pursuant to FINRA Rule 9311.  The NAC Decision upheld the Panel’s ruling.  The bar took effect on August 23, 2016.  Ms. Springsteen-Abbott appealed the NAC Decision to the SEC.  On March 31, 2017, the SEC remanded the matter back to FINRA for further consideration consistent with the SEC’s remand, but did not suggest any view as to a particular outcome. 
 
On July 21, 2017, FINRA reaffirmed its position on the bar from the securities industry, but reduced the list of 1,840 items totaling $208,000 to a remaining list of 84 items totaling $36,226, and reduced the proposed fine from $100,000 to $50,000. On August 14, 2017 respondents appealed FINRA’s revised ruling. As of November 14, 2017, management believes that final resolution will not result in any material adverse financial impact on the Funds, but no assurance can be provided until the legal matter is resolved. Ms. Springsteen-Abbott has filed a Notice of Appeal and Preliminary Statement with the SEC.
 
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
FORWARD LOOKING STATEMENTS
 
This section, as well as other portions of this document, includes certain forward-looking statements about our business and our prospects, tax treatment of certain transactions and accounting matters, sales of securities, expenses, cash flows, distributions, investments and operating and capital requirements. Such forward-looking statements include, but are not limited to: acquisition policies of our general partner; the nature of present and future leases; provisions for uncollectible accounts; the strength and sustainability of the U.S. economy; the continued difficulties in the credit markets and their impact on the economy in general; and the level of future cash flow, debt levels, revenues, operating expenses, amortization and depreciation expenses. You can identify those statements by the use of words such as “could,” “should,” “would,” “may,” “will,” “project,” “believe,” “anticipate,” “expect,” “plan,” “estimate,” “forecast,” “potential,” “intend,” “continue” and “contemplate,” as well as similar words and expressions.
 
Actual results may differ materially from those in any forward-looking statements because any such statements involve risks and uncertainties and are subject to change based upon various important factors, including, but not limited to, nationwide economic, financial, political and regulatory conditions; the health of debt and equity markets, including interest rates and credit quality; the level and nature of spending in the information, medical and telecommunications technologies markets; and the effect of competitive financing alternatives and lease pricing.
 
Readers are also directed to other risks and uncertainties discussed in other documents we file with the SEC, including, without limitation, those discussed in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed with the SEC. We undertake no obligation to update or revise any forward-looking information, whether as a result of new information, future developments or otherwise.
 
16
 
 
INDUSTRY OVERVIEW
 
The Equipment Leasing and Finance Association’s (ELFA) Monthly Leasing and Finance Index (MLFI-25), which reports economic activity from 25 companies representing a cross section of the $1 trillion equipment finance sector, showed their overall new business volume for September was $8.7 billion, down 7% year-over-year from new business volume in September 2016. Volume was up 12% month-to-month from $7.8 billion in August. Year to date, cumulative new business volume was up 4% compared to 2016. Receivables over 30 days were 1.40%, down from 1.50% the previous month and down from 1.50% in the same period in 2016. Charge-offs were 0.40%, down from 0.44% the previous month, and down from 0.46 in the year-earlier period. Credit approvals totaled 74% in September, down from 75.3% in August. Total headcount for equipment finance companies was up 16.5% year over year, largely attributable to continued acquisition activity at an MLFI reporting company. Separately, the Equipment Leasing & Finance Foundation’s Monthly Confidence Index (MCI-EFI) for October is 63.7, unchanged from September.
 
CRITICAL ACCOUNTING POLICIES
 
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base these estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
 
We believe that our critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements.
 
See Note 2 to our condensed financial statements included herein for a discussion of recent accounting pronouncements.
 
LEASE INCOME RECEIVABLE
 
Lease income receivable includes current lease income receivable net of allowances for uncollectible amounts. The Partnership monitors lease income receivable to ensure timely and accurate payment by lessees. Its Lease Relations department is responsible for monitoring lease income receivable and, as necessary, resolving outstanding invoices.
 
The Partnership reviews a customer’s credit history before extending credit. The Partnership may establish an allowance for uncollectible lease income receivable based upon the credit risk of specific customers, historical trends and other information when the analysis indicates that the probability of full collection is unlikely. The Partnership writes off its accounts receivable when it determines that it is uncollectible and all economically sensible means have been exhausted.
 
REVENUE RECOGNITION
 
Through September 30, 2017, the Partnership’s lease portfolio consisted of operating and finance leases. For operating leases, lease revenue is recognized on a straight-line basis in accordance with the terms of the lease agreements.
 
Finance lease interest income is recorded over the term of the lease using the effective interest method. For finance leases, we record, at lease inception, unearned finance lease income which is calculated as follows: total lease payments, plus any residual values and initial direct costs, less the cost of the leased equipment.
 
17
 
Upon the end of the lease term, if the lessee has not met the return conditions as set out in the lease, the Partnership is entitled, in certain cases, to additional compensation from the lessee. The Partnership’s accounting policy for recording such payments is to treat them as revenue.
 
Gain or losses from sales of leased and off lease equipment are recorded on a net basis in the Fund’s condensed Statement of Operations.
 
Our leases do not contain any step-rent provisions or escalation clauses nor are lease revenues adjusted based on any index.
 
Gains from the termination of leases are recognized when the lease is modified and terminated concurrently. Gains from lease termination included in lease revenue for both the six months ended September 30, 2017 and 2016 was approximately $0 and $1,000, respectively.
 
LONG-LIVED ASSETS
 
Depreciation on equipment for financial statement purposes is based on the straight-line method estimated generally over useful lives of two to four years. Once an asset comes off lease or is re-leased, the Partnership reassesses the useful life of an asset.
 
The Partnership evaluates its long-lived assets when events or circumstances indicate that the value of the asset may not be recoverable. The Partnership determines whether impairment exists by estimating the undiscounted cash flows to be generated by each asset. If the estimated undiscounted cash flows are less than the carrying value of the asset then impairment exists. The amount of the impairment is determined based on the difference between the carrying value and the fair value. Fair value is determined based on estimated discounted cash flows to be generated by the asset, third party appraisals or comparable sales of similar assets, as applicable, based on asset type.
 
Residual values are determined by management and are calculated using information from both internal and external sources, as well as other economic indicators.
 
LIQUIDITY AND CAPITAL RESOURCES
 
Our primary sources of cash for the nine months ended September 30, 2017 were cash proceeds from the sale of equipment of approximately $118,000 and payments received from finance leases of approximately $11,000.  This compares to the nine months ended September 30, 2016 where our primary sources of cash were cash provided by operating activities of approximately $21,000, cash proceeds from the sale of equipment of approximately $7,000 and payments received from finance leases of approximately $13,000.  
 
Our primary use of cash for the nine months ended September 30, 2017 was approximately 0.  Our primary use of cash for the nine months ended September 30, 2016 was for the purchase of new equipment of approximately $30,000.
 
For the nine months ended September 30, 2017, cash was used in operating activities of approximately $114,000, which includes net loss of approximately $21,000 and depreciation and amortization expenses of approximately $598,000.  Other non-cash activities included in the determination of net income were direct payments of lease income by lessees to banks of approximately $593,000. For the nine months ended September 30, 2016, cash was provided by operating activities of approximately $21,000, which includes net loss of approximately $35,000 and depreciation and amortization expenses of approximately $669,000.  Other non-cash activities included in the determination of net income were direct payments of lease income by lessees to banks of approximately $627,000.
 
18
 
 
At September 30, 2017, cash was held in one bank account maintained at one financial institution with a balance of approximately $38,000. Bank accounts are federally insured up to $250,000 by the FDIC. At September 30, 2017, the total cash bank balance was as follows:
 
At June 30, 2017
Balance
Total bank balance
 $38,000 
FDIC insured
  (38,000)
Uninsured amount
 $- 
 
The Partnership's deposits are fully insured by the FDIC. The Partnership has not experienced any losses in our accounts, and believes it is not exposed to any significant credit risk. The amounts in such accounts will fluctuate throughout 2017 due to many factors, including cash receipts and interest rates.
 
Our investment strategy of acquiring equipment and generally leasing it under triple-net leases to operators who generally meet specified financial standards minimizes our operating expenses.  As of September 30, 2017, we had future minimum rentals on non-cancelable operating leases of approximately $189,000 for the balance of the year ending December 31, 2017 and approximately $626,000 thereafter.  As of September 30, 2017, we had future minimum rentals on non-cancelable finance leases of approximately $3,000 for the balance of the year ending December 31, 2017 and approximately $11,000 thereafter.  
 
As of September 30, 2017, our non-recourse debt was approximately $756,000, with interest rates ranging from 1.60% through 6.00% and will be payable through December 2019. During 2015, the General Partner executed a collateralized debt financing agreement on behalf of certain affiliates for a total shared loan amount of approximately $847,000, of which the Partnership’s share was approximately $52,000. The Partnership’s portion of the current loan amount at September 30, 2017 was approximately $12,000 and is secured by specific equipment under both operating and finance leases. The carrying value of the secured equipment under operating leases is approximately $2,000.  The carrying value of the secured equipment under finance leases is approximately $19,000.
 
Commonwealth Capital Corp., on our behalf and on behalf of other affiliated partnerships, acquires equipment subject to associated debt obligations and lease revenue and allocates a participation in the cost, debt and lease revenue to the various partnerships based on certain risk factors.
 
Our cash from operations is expected to continue to be adequate to cover all operating expenses and liabilities during the next 12-month period. The General Partner continues to suspend limited partner distributions for the nine month period ended September 30, 2017. The General Partner will reassess the funding of limited partner distributions on a quarterly basis, throughout 2017. The General Partner and CCC will also determine if related party payables owed to them by the Partnership may be deferred (if deemed necessary) in an effort to increase the Partnership’s cash flow.  
 
The Partnership was originally scheduled to end its operational phase on December 31, 2013.  During the year ended December 31, 2013, the operational phase was officially extended to December 31, 2015 through a proxy vote initiated by the General Partner.  The Partnership’s operational phase ended on December 31, 2015.  The Fund is scheduled to commence its wind down process on December 31, 2017.  The General Partner has not formally approved a plan for liquidation at this time.  As such, the Partnership will continue to report its financial statements on a going concern basis until a formal plan of liquidation is approved by the General Partner.
 
In an effort to increase cash flow, the General Partner elected to forgo distributions and allocations of net income owed to it, and suspended limited partner distributions during the nine months ended September 30, 2017. The General Partner and CCC also waived certain fees owed to them by the Partnership in an effort to further support the Partnership.
 
19
 
 
The General Partner and CCC have committed to fund, either through cash contributions and/or forgiveness of indebtedness, any necessary operational cash shortfalls of the Partnership through September 30, 2018. The General Partner will continue to reassess the funding of limited partner distributions throughout 2017 and will continue to waive certain fees if the General Partner determines it is in the best interest of the Partnership to do so. If available cash flow or net disposition proceeds are insufficient to cover the Partnership expenses and liabilities on a short and long term basis, the Partnership may attempt to obtain additional funds by disposing of or refinancing equipment, or by borrowing within its permissible limits.
 
RESULTS OF OPERATIONS
 
Three Months Ended September 30, 2017 compared to Three Months Ended September 30, 2016
 
Lease Revenue
 
Lease revenue decreased to approximately $224,000 for the three months ended September 30, 2017, from $249,000 for the three months ended September 30, 2016. This decrease was primarily due to a decrease in the number and size of active leases generating lease revenue for the Partnership.
 
The Partnership had 78 and 105 active operating leases that generated lease revenue of approximately $224,000 and $249,000 during the three months ended September 30, 2017 and 2016, respectively.  Management does not expect to acquire new leases as the Partnership’s operational phase ended on December 31, 2015.
 
Sale of Equipment
 
For the three months ended September 30, 2017, the Partnership sold equipment with net book value of approximately $133,000 for a net loss of approximately $26,000.  For the three months ended September 30, 2016, the Partnership had no equipment sales.
 
Operating Expenses
 
Our operating expenses, excluding depreciation, primarily consist of accounting, legal, outside service fees and reimbursement of expenses to CCC, a related party, for administration and operation of the Partnership. Operating expenses were approximately $8,000 and $12,000 for the three months ended September 30, 2017 and 2016, respectively.  This change is primarily due to a decrease in investor services expenses of approximately $3,000.
 
Depreciation and Amortization Expense
 
Depreciation and amortization expenses consist of depreciation on equipment and amortization of equipment acquisition fees.  Depreciation and amortization expenses for the three months ended September 30, 2017 and 2016 were approximately $192,000 and $221,000, respectively.  
 
Net Loss
 
For the three months ended September 30, 2017, we recognized revenue of approximately $224,000 and expenses of approximately $236,000, resulting in net loss of approximately $12,000.  For the three months ended September 30, 2016, we recognized revenue of approximately $250,000 and expenses of approximately $253,000, resulting in net loss of approximately $3,000.  This change in net loss is primarily due to the changes in revenue and expenses as described above.
 
20
 
 
Nine Months Ended September 30, 2017 compared to Nine Months Ended September 30, 2016
 
Lease Revenue
 
Lease revenue decreased to approximately $700,000 for the nine months ended September 30, 2017, from $757,000 for the nine months ended September 30, 2016. This decrease was primarily due to a decrease in the size of active leases generating lease revenue for the Partnership.
 
The Partnership had 98 and 113 active operating leases that generated lease revenue of approximately $700,000 and $757,000 during the nine months ended September 30, 2017 and 2016, respectively.  Management does not expect to acquire new leases as the Partnership’s operational phase ended on December 31, 2015.
 
Sale of Equipment
 
For the nine months ended September 30, 2017, the Partnership sold equipment held under operating leases with net book value of approximately $142,000, for a net loss of approximately $24,000.  For the nine months ended September 30, 2016, the Partnership sold equipment held under operating leases with net book value of approximately $6,000, for a net gain of approximately $1,000.
 
Operating Expenses
 
Our operating expenses, excluding depreciation, primarily consist of accounting, legal, outside service fees and reimbursement of expenses to CCC, a related party, for administration and operation of the Partnership. These expenses decreased to approximately $62,000 for the nine months ended September 30, 2017, compared to $63,000 for the nine months ended September 30, 2016.  This change is primarily due to a decrease in accounting fees and financial reporting expenses as a result of a change in software used for SEC electronic filing of approximately $5,000, a decrease in investor services expenses of approximately $3,000, a decrease in accounting fees of approximately $3,000 and a decrease in IT related expenses of approximately $3,000, partially offset by an increase in legal fees of approximately $13,000.
 
Depreciation and Amortization Expense
 
Depreciation and amortization expenses consist of depreciation on equipment, including impairment charges, and amortization of equipment acquisition fees. Depreciation and amortization expense for the nine months ended September 30, 2017 and 2016 were approximately $598,000 and $669,000, respectively.  
 
Net Loss
 
For the nine months ended September 30, 2017, we recognized revenue of approximately $703,000 and expenses of approximately $724,000, resulting in a net loss of approximately $21,000.  For the nine months ended September 30, 2016, we recognized revenue of approximately $760,000 and expenses of approximately $795,000, resulting in a net loss of approximately $35,000.  This change in net income is primarily due to the changes in revenue and expenses as described above.
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
N/A
 
Item 4. Controls and Procedures
 
Our management, under the supervision and with the participation of the General Partner’s Chief Executive Officer and Principal Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures related to our reporting and disclosure obligations as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, the General Partner’s Chief Executive Officer and Principal Financial Officer have concluded that, as of September 30, 2017, our disclosure controls and procedures are effective in ensuring that information relating to us which is required to be disclosed in our periodic reports filed or submitted under the Securities Exchange Act of 1934 is (a) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (b) accumulated and communicated to management, including the General Partner’s Chief Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. There were no changes in the Partnership’s internal control over financial reporting during the third quarter of 2017 that have materially affected or are reasonably likely to materially affect its internal control over financial reporting.
 
21
 
 
Part II: OTHER INFORMATION
 
Item 1. Legal Proceedings
 
Investor Complaint
 
On November 10, 2015, certain investors (the “Claimants”) of Commonwealth Income & Growth Fund V (“CIGF5”) and Commonwealth Income & Growth Private Fund III (“CIGPF3”) (Collectively referred to as the “Funds”), filed an investor complaint with FINRA naming CCSC and Ms. Springsteen-Abbott (the “Respondents”).  The Claimants, at the advice and recommendation of their personal financial advisors, purchased limited partnership units in CIGF5 between February 2005 and February 2006 and in CIGPF3 between April 2005 and February 2007.  The Claimants allege that the Respondents did not properly perform their duties as fund manager.  The Funds are not members of FINRA and/or subject to its jurisdiction.
 
The Respondents filed a complaint on December 23, 2015, against the Claimants in the United States District Court for the District of Maryland to enjoin the Claimants from proceeding with the arbitration and requiring its dismissal.  The Claimants withdrew its complaint with FINRA on July 27, 2016.  On August 1, 2016, the Respondents were granted voluntary dismissal in Federal court given the withdrawal of the FINRA claim.
 
On September 28, 2016, 23 investors, in addition to the original Claimants (the “Florida Claimants”) filed a complaint in the United States District Court for the Middle District of Florida, Albers et al. v. Commonwealth Capital Corp. et al., Case No. 6:16-cv-01713-Orl-37DCI, against the Partnership, Commonwealth Income & Growth Private Fund I, Commonwealth Income & Growth Private Fund II, CIGPF3 and CIGF5.  The allegation consists of breach of contract, securities fraud, misstatement in the prospectus, fraudulent concealment, negligence, common law fraud (the “Original Complaint”).  On October 18, 2016, the judge dismissed the Original Complaint without prejudice with leave to refile. The judge dismissed the Original Complaint for procedural failures. On October 28, 2016, the Florida Claimants filed an amended complaint that included the original claims with the addition of claims for negligent supervision and breach of industry standards (“Amended Complaint’). On July 17, 2017 the United States Court for the Middle District of Florida dismissed all claims and closed the file.
 
FINRA
 
On May 3, 2013, the FINRA Department of Enforcement filed a complaint naming Commonwealth Capital Securities Corp. (“CCSC”) and the owner of the firm, Kimberly Springsteen-Abbott, as respondents; however on October 22, 2013, FINRA filed an amended complaint that dropped the allegations against CCSC and reduced the scope of the allegations against Ms. Springsteen-Abbott.  The sole remaining charge was that Ms. Springsteen-Abbott had approved the misallocation of some expenses to certain Funds.
 
Management believes that the expenses at issue include amounts that were proper and that were properly allocated to Funds, and also identified a smaller number of expenses that had been allocated in error, but were adjusted and repaid to the affected Funds when they were identified in 2012.  During the period in question, Commonwealth Capital Corp. (“CCC”) and Ms. Springsteen-Abbott provided important financial support to the Funds, voluntarily absorbed expenses and voluntarily waived fees in amounts aggregating in excess of any questioned allocations. That Panel ruled on March 30, 2015, that Ms. Springsteen-Abbott should be barred from the securities industry because the Panel concluded that she allegedly misallocated approximately $208,000 of expenses involving certain Funds over the course of three years. As such, management has allocated approximately $87,000 of the $208,000 in allegedly misallocated expenses back to the affected funds as a contingency accrual in CCC’s financial statements and a good faith payment for the benefit of those Income Funds. 
 
Decisions issued by FINRA's Office of Hearing Officers may be appealed to FINRA's National Adjudicatory Council (NAC) pursuant to FINRA Rule 9311.  The NAC Decision upheld the Panel’s ruling.  The bar took effect on August 23, 2016.  Ms. Springsteen-Abbott appealed the NAC Decision to the SEC.  On March 31, 2017, the SEC remanded the matter back to FINRA for further consideration consistent with the SEC’s remand, but did not suggest any view as to a particular outcome. 
 
On July 21, 2017, FINRA reaffirmed its position on the bar from the securities industry, but reduced the list of 1,840 items totaling $208,000 to a remaining list of 84 items totaling $36,226, and reduced the proposed fine from $100,000 to $50,000. On August 14, 2017 respondents appealed FINRA’s revised ruling. As of November 14, 2017, management believes that final resolution will not result in any material adverse financial impact on the Funds, but no assurance can be provided until the legal matter is resolved. Ms. Springsteen-Abbott has filed a Notice of Appeal and Preliminary Statement with the SEC.
 
22
 
 
Item 1A. Risk Factors
N/A
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
N/A
 
Item 3. Defaults Upon Senior Securities
N/A
 
Item 4. Mine Safety Disclosures
N/A
 
Item 5. Other Information
NONE
 
Item 6. Exhibits
 
 
 
23
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
COMMONWEALTH INCOME & GROWTH FUND IV
 
BY: COMMONWEALTH INCOME & GROWTH FUND, INC., General Partner
 

November 14, 2017
By: /s/ Kimberly A. Springsteen-Abbott
Date
Kimberly A. Springsteen-Abbott
 
Chief Executive Officer

Commonwealth Income & Growth Fund, Inc.
 
 
 
 
November 14, 2017
By: /s/ Lynn A. Whatley
Date
Lynn A. Whatley
 
Executive Vice President, Chief Operating Officer
 
24